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A.G., OMIG Collaborate To Shut Down Massive Money Laundering & Bribery Scheme That Cost The NYS Medicaid Program $155 Million

Schneiderman: We Will Protect Vulnerable New Yorkers And Taxpayer Dollars At All Costs

NEW YORK- Attorney General Eric T. Schneiderman today announced the arrests and indictment of four ringleaders of a massive scheme to distribute black market prescription HIV drugs and defraud the Medicaid Program of $155 million. After an investigation code-named “Operation Black Market Meds,” the Attorney General’s Medicaid Fraud Control Unit shut down an illegal operation that was distributing HIV prescription drugs obtained on the black market through MOMS pharmacy, a high-volume pharmacy with satellites in Suffolk County and Brooklyn. MOMS, and its parent company Allion Healthcare, then dispensed the illegally obtained drugs to Medicaid recipients, and billed the New York State Medicaid program for these un-sellable drugs.

The scheme endangered patients by exposing them to drugs of unknown origin and potency, and in some cases, drugs that were mislabeled or potentially expired. In addition to today’s criminal charges, the Attorney General is seeking $155 million in civil penalties from the defendants.

“The ringleaders of this complex scheme not only cheated the state Medicaid program out of millions of dollars, but preyed on some of New York’s most vulnerable patients just to make a quick buck. These crimes are intolerable, and the perpetrators will be held accountable for breaking the law,” said Attorney General Schneiderman. “Our office will continue to protect taxpayers and consumers from schemes that threaten the safety of the public.”

The indictment, which was unsealed today in New York State Supreme Court in Suffolk County by Judge James C. Hudson, charges four defendants with Class B felonies including Grand Larceny in the First Degree for thefts from the Medicaid Program and the parent company of the pharmacies, Criminal Diversion of Prescription Medications and Prescriptions in the First Degree (a Class C felony), Money Laundering in the First Degree and Second Degree (a Class C felony); Class E felony crimes of Commercial Bribery and Commercial Bribe Receiving in the First Degree, Offering a False Instrument for Filing in the First Degree, and Conspiracy in the Fourth Degree, among other charges. Each of the class B felony charges carries a maximum of 8 1/3 to 25 years imprisonment.

According to the indictment and forfeiture complaint, beginning in September 2008, Glenn Schabel, the supervising pharmacist and compliance officer for MOMS pharmacy, accepted bribes to purchase in excess of $274 million worth of black market HIV medications from a web of shell companies. The prescription drugs were obtained by various illegal means and the batches may have included unused pills that had previously been dispensed to individuals, medications stolen from manufacturers, or drugs that had expired. The shell companies were controlled by Stephen Manuel Costa, a 27-year-old Florida resident who incorporated four separate entities as “wholesale” distributors in order to disguise the sale of the diverted medications. Costa furnished millions of the black market HIV medications, and dispensed the prescriptions to MOMS patients, many of whom were Medicaid recipients. Allion, under the direction of Schabel, continued to bill Medicaid, knowing the drugs were purchased illegally.

Attorney General Schneiderman’s investigation also revealed that Ira Gross, another licensed pharmacist, brokered the sale of the illegally diverted drugs between Schabel and Costa. The fourth defendant, Harry Abolafia, created false invoices for Costa’s companies—SMC Distributors, Fidelity Wholesale, Optimus Wholesale, and Nuline Pharmaceuticals—in order to make the transactions appear to be legitimate. In total, on behalf of Allion, Schabel purchased $274 million worth of black market HIV medications from Costa. For their efforts, Schabel, Gross and Abolafia were all paid a portion of Costa’s profit: $5,336,465, $21,165,374 and $1,429,612, respectively.

In these types of black market operations, drugs are obtained from a variety of sources, and can be rebottled with fake labels and serial numbers, broken seals, or contain different medications than what’s indicated on the labels. As a result, patients are exposed to potential adverse drug interactions, overdoses, or a decline in their condition by not getting the treatment they were prescribed.

The indictment charges that at least $155 million in false claims were made to the New York State Medicaid Program after the drugs were dispensed.

Through the use of telephone wiretaps, the Attorney General’s Medicaid Fraud Control Unit intercepted a delivery of over $1 million worth of prescription HIV medications from one of Costa’s companies, Nuline Pharmaceuticals, to the Melville distribution center of MOMS pharmacy. The investigators simultaneously executed a search warrant, and, with the assistance of a team of pharmacists from the New York State Office of the Medicaid Inspector General (OMIG), seized millions of dollars of diverted HIV medications.

Earlier this year, the Attorney General also seized millions of dollars in assets of the defendants through a forfeiture complaint filed in conjunction with the execution of a search warrant at MOMS pharmacy in Melville.

“Creating a black market with taxpayer-funded HIV medication is an insidious and costly fraud,” said Medicaid Inspector General James C. Cox. “Our pharmacy investigators were there as part of the search warrant team and offered important testimony to the grand jury to obtain an indictment that was unsealed today. I am proud of the work that not only these investigators did, but also the work of our entire staff in cases such as these.”

The Attorney General thanked the New York State Office of the Medicaid Inspector General, under the direction of Medicaid Inspector General James Cox, and the field staff of OMIG pharmacists and other specialists. The New York City Office of Special Narcotics Prosecutor and the US Drug Enforcement Administration, the US Food and Drug Administration and the Department of Health and Human Services, Office of Inspector General provided valuable information and assistance during the investigation.

The indictment is being prosecuted by Medicaid Fraud Control Unit Special Assistant Attorneys General Vernitta Chambers and Adam Shlahet and MFCU Deputy Regional Director Thomas O’Hanlon; the forfeiture action was filed by Special Assistant Attorneys General Diana Elkind and Andrew Gropper. The investigation was conducted by MFCU Senior Investigators Victor Maldonado and Lawrence Riccio and a squad of MFCU investigators led by Supervising Investigator Thomas Creelman. The Medicaid Fraud Control Unit is directed by Special Deputy Attorney General Monica Hickey-Martin.

The charges against the defendants are merely accusations and the defendants are presumed innocent until and unless proven guilty in a court of law.

A.G. Schneiderman Issues Fraud Alert On Immigration Scams

Amid Surge Of Bias Crimes, A.G. Schneiderman Stands With Dozens Of Civil Rights Leaders To “Stand Up To Hate,” Issues Urgent Bulletin To Local Law Enforcement Offering Guidance In Identifying And Prosecuting Hate Crimes